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Positive and Negative Cash Flow: What’s the Difference?

To have a solid prediction of what your business’s cash situation will look like in the coming months, you need to put together a cash flow forecast. This is important for future planning so that you can make the right decisions for your company’s future.

From a cash perspective, your cash flow forecast will tell you when it is safe to expand, add more employees, or purchase additional equipment.

The key to being able to read and use your cash flow forecast is understanding the positive and negative cash flows and how they impact your business. Understanding these two concepts and what they mean for your business will make your cash flow forecast a vital tool for business management.

What is positive cash Flow?

Positive cash flow means a company has more money moving into it than out of it or the receipt of more cash than was paid out. It means having to spend less than the amount of cash you received from your customers, new loans or investment, or sales of assets that you owned.

Having a positive cash flow means that you would not need to use the salaried income to cover expenses and therefore enables you to quickly expand your portfolio.

And as your cash flow is measured over fixed periods of time, typically a month, if you are cash flow positive for several months in a row, this means your business is accumulating cash and your bank account is growing over time.

What is negative cash flow? Negative cash flow means a company has more money moving out of it than into it. It is the result of paying out more cash than receiving. Negative cash flow is defined as property that takes away more money than you earn as rental income.

A business has negative cash flow when cash spending on expenses like payroll, marketing, rent, insurance, and other services is more than the cash coming in. Another cash spending that may lead to negative cash flow includes spending cash to purchase assets like inventory, vehicles, and property.

And when your business has negative cash flow, your bank accounts are being depleted over time and you will have less and less cash.

Do you want to make your negative cash flow positive?  We can help you! Contact www.bashoffcfo.com or call us at 410-952-6767 for a free consultation.

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5 Mistakes Small Businesses Make

Starting up a small business can be a stressful time for anyone, however, being your own boss can be extremely rewarding, when the business becomes successful. Often small business owners fall into several pitfalls when they try to start a small business.  Here are a few mistakes to avoid.

Not having a written Business Plan.  This is one of the biggest mistakes that a small owner can make.  You need to know your initial investment, your target demographics, and the nuances of your business in order to understand how to develop it further.

Not Doing Market Research. Do you know who your customers will be? Do you know how much they are willing to spend? How about your key competitors? Do changes in season and economics, change the scale of profit?  You have to fully understand your market in order to thrive in it.

Ignoring Competitors. In a similar vein, you need to know your competitors inside and out. What do they do right? What do they do wrong? Staying on top of them not only allows you to understand best practices in the industry, but can also help you fix what they did wrong.

Not Investing in Marketing. If you want your business to succeed, then your potential customers must know that it exists.  Invest in marketing such as advertisements, best and social media practices, in order to get the word out about your new endeavor.

Not Keeping Track of Weaknesses. Be vigilant in knowing where your businesses’ key weaknesses are.  You must constantly strive to fix these weaknesses and create the best business within your chosen industry.

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